What do Shakespeare\u2019s plays of miraculous changes of fortune have to do with, well, Fortune? Bank of America Institute has projected<\/a> a \u201csea change\u201d in the economy. It sees a pivotal transformation in worker productivity at America\u2019s largest companies, driven by lessons from post-pandemic inflation and supercharged by a wave of artificial intelligence and automation. The institute worked hand in hand with projections from Bank of America<\/a> Research to project a rewiring of the fundamental valuation landscape of the S&P 500, with profound implications for investors and the \u201cquality premium\u201d that U.S. stocks traditionally command.<\/p>\n Fortune talked to BofA Research\u2019s Head of US Equity & Quantitative Strategy, Savita Subramanian, to dig into this change, potentially to something rich and strange. It\u2019s not quite that mystical, she said, but she still thinks it\u2019s a big deal.<\/p>\n Finally, a productivity surge?<\/p>\n Subramanian explained that what her team has projected isn\u2019t as exciting or dramatic as having actual wizards working at the gears of the economy. The more prosaic insight, she says, is that the combination of AI technology and lessons learned from the inflation wave of the 2020s mean that worker productivity is finally showing signs of increasing. That\u2019s the sea change taking place.<\/p>\n At its heart, her work is all about the famous \u201cproductivity paradox\u201d identified by Nobel prize-winning economist Robert Solow. \u201cYou can see the computer age everywhere but in the productivity statistics,\u201d he said in 1987<\/a>, long before the productivity crisis of the 21st century set in. As Fortune\u2018s Jeremy Kahn<\/a> has discussed, workers still don\u2019t seem to be getting more productive despite the bevy of new technologies at their disposal. In fact, McKinsey\u2019s Chris White and Olivia White argued<\/a> in 2024 that productivity has been dismal for nearly a generation, hovering around 1% a year, with a dip after the Great Financial Crisis. Subramanian agrees, telling Fortune that if you look at productivity measures, \u201cthey haven\u2019t really improved all that much since 2001.\u201d<\/p>\n Subramanian wrote on Aug. 8<\/a> that the end goal of the massive AI spending that\u2019s rippling through the economy is a \u201csea-change\u201d in the scale and scope of\u00a0efficiency\u00a0gains\u2014and this productivity cycle is already under way. Post-pandemic wage inflation forced companies \u201cto do more with\u00a0fewer\u00a0people,\u201d she added, and now AI tools are due to kick that up a notch.<\/p>\n But the official stats don\u2019t show a complete understanding of how productivity really functions, Subramanian explained. So BofA took sales, adjusted for inflation, and then divided sales by the number of people working at S&P 500 companies, showing real sales growth versus number of people, what she called a \u201cdecent proxy\u201d for productivity, \u201cbecause if you\u2019re productive, you are doing things more efficiently, you need less labor. And this is more labor efficiency than anything else.\u201d<\/p>\n Look at what she found.<\/p>\n This means companies are learning to do more with less, and that is kind of magical. Companies have had to do harder work to generate earnings and keep margins healthy, often by replacing their people with processes. \u201cA process is almost free and it\u2019s replicable for eternity,\u201d she said, adding that she thinks this is why the companies exercising efficiency gains have tended to outperform.\u00a0It\u2019s not only about AI displacing workers, but a fundamental shift in how business is being done.<\/p>\n \u2018It feels like sorcery\u2019<\/p>\n This discussion may seem on its face to be more boring than a tempest and a wizard, she said, but there is something supernatural about the current moment. \u201cI think people love this AI technology because it feels like sorcery,\u201d she said, before adding, \u201cthe truth is it hasn\u2019t really changed the world that much yet, but I don\u2019t think it\u2019s something to be dismissed.\u201d<\/p>\n Overall, Subramanian finds the S&P 500 has shifted from\u00a0its 1980s model of asset- and labor-intensive manufacturing to asset- and labor-light innovation, namely tech and health care firms. Showing her work, she calculates that the S&P 500 firms with a focus on innovation, measured through high research and development expenditures, trade at structurally higher multiples\u00a0of 29x\u00a0forward earnings per share. More capital-intensive manufacturers, on the other hand, trade at a 21x multiple. The current AI boom is actually a bit risky, she wrote, because the massive data center investments represent a shift from an asset-light to an asset-heavier focus.<\/p>\n To be sure, BofA finds that the S&P 500 is now statistically expensive on 19 out of the 20 metrics that they track, including P\/E, price to book, price to cash flow, and market cap\/GDP. That\u2019s where the sea change matters, because if the shift from manufacturing to innovation is real, then valuations have to shift as well. Hence the \u201cinnovation premium\u201d from BofA\u2019s research.<\/p>\n Excluding Tesla<\/a>, Subramanian talks about the other members of the \u201cMagnificent Seven\u201d as evidence of firms losing some of their innovation premium as a result of a shift toward asset-heaviness. As a basket of stocks, Microsoft<\/a>, Google<\/a>, Amazon<\/a>, Meta<\/a>, Nvidia<\/a> and Apple\u2019s average shareholder yield (i.e., dividends plus net buybacks) has dropped by over 1% since 2015.<\/p>\n There are other shifts afoot as well, she told Fortune. \u201cWe seem to be at least pausing on this globalization theme,\u201d she said, citing China\u2019s admission to the World Trade Organization in 2001 as a big driver of margin expansion, enabling cost-cutting as a huge lever to keep margins expanding. (It was also the year when worker productivity froze in its tracks.) <\/p>\n In the globalization regime, \u201cyou didn\u2019t have to think too hard to make money and expand your margins,\u201d she said. It was \u201cvery easy and fungible and frictionless\u201d for companies to buy things from different places and contain costs. She also cited the low-interest-rate environment that persisted for much of the past few decades, enabling lots of \u201cfinancial engineering.\u201d <\/p>\n For example, Subramanian said it was common to see companies that knew they would miss their earnings estimates borrowing money and buying back stock to hit their targets, adding the caveat that \u201cthere are good reasons to do share buybacks and bad reasons to do share buybacks.\u201d This all \u201creally created a lot of bizarre behavior.\u201d<\/p>\n Warren Buffett\u2019s long-time fondness for stock buybacks has even come under fire from other investors, with Jeremy Grantham<\/a> writing in 2023 that it facilitates stock manipulation and should be illegal. BofA Research found in July 2025<\/a>, however, that stock buybacks had decelerated a bit, albeit they remained high by historical standards.<\/p>\n The situation now is harder in many ways, but companies aren\u2019t able to financially engineer their way to earnings growth, she added. Now that\u2019s a sea change.<\/p>\n One final note on the Shakespearean romances, from Drew Lichtenberg: that appellation came about in the late 1700s, nearly two centuries after Shakespeare\u2019s lifetime, with the birth of the romantic movement. The word \u201cromantic\u201d had previously existed, but it didn\u2019t have its current meaning until Samuel Taylor Coleridge elevated it to mean something that connects back directly to nature and the divine genius of humanity\u2019s self-expression. This was largely a response to the Enlightenment\u2019s elevation of reason and logic and its ultimate achievement: the Industrial Revolution that unleashed modern capitalism on the world. A sea change, indeed.<\/p>\n","protected":false},"excerpt":{"rendered":"The late plays by William Shakespeare are alternately called his \u201cromances\u201d or his \u201cproblem plays,\u201d because of their…\n","protected":false},"author":2,"featured_media":18907,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[261],"tags":[291,289,290,7213,18,19,185,17,227,3796,82],"class_list":{"0":"post-18906","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-artificial-intelligence","8":"tag-ai","9":"tag-artificial-intelligence","10":"tag-artificialintelligence","11":"tag-bank-of-america","12":"tag-eire","13":"tag-ie","14":"tag-inflation","15":"tag-ireland","16":"tag-jobs","17":"tag-productivity","18":"tag-technology"},"share_on_mastodon":{"url":"","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/18906","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=18906"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/18906\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/18907"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=18906"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=18906"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=18906"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}![\"\"](\"https:\/\/www.europesays.com\/ie\/wp-content\/uploads\/2025\/08\/bofa-worker-productivity.png\"\/)
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